Those with pensions invested in the stock market and shares or funds in Isas or investment accounts watched in horror as the FTSE 100 — the index of the biggest companies listed on the London Stock Exchange — went into freefall.

As it tumbled below 6,000 for the first time in two and a half years, millions began to realise they were sitting on hefty paper losses. At the close of play on Monday, more than £74 billion had been wiped from the value of the market.

The rout was triggered by panic at a slump in China’s stock market. As investors lost faith in the ability of the world’s second biggest economy to keep on growing at a healthy rate, it sparked a knock-on wave of selling across the world’s major stock markets.

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Shockwaves across the globe: Despair is etched on the faces of traders in New York and Frankfurt on Black Monday when more than £74 billion was wiped from the value of the market

After Monday’s chaos, UK stock markets made a decent fist of a rally, and last night the FTSE 100 closed at 6,081 — up 3 per cent.

But this is still down by 15 per cent from the 7,100 all-time high it hit just four months ago, on April 27.

Over the past few days, many readers have contacted us worried that their retirement may be in jeopardy.

Those who put money in a tracker — a fund which slavishly follows the stock market index up and down — are especially concerned.

Others are asking if lower share prices mean this is actually a good time to start buying. Here is our guide to the market mayhem — and what you can do to manage your finances.

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HOW THIS IS MONEY CAN HELP

China, on which the world relies enormously for economic growth, is in the grip of a crisis.

Until recently, the communist country was known as the world’s engine room on account of spectacular annual growth rises of as much as 8 per cent a year, thanks to its prodigious appetite for commodities such as oil, copper, iron, energy and consumer goods.

And despite the bumps which inevitably accompany such rapid expansion, the country appeared confident of powering ahead. Its huge 1.4 billion population was still spending vast sums buying up imports from around the world — China is Britain’s sixth biggest market.

In particular, an increasingly affluent middle class has helped stoke consumer demand. And global exports from China’s factories — famed for being able to knock out quality goods, especially electronics, at a very low cost — continued to boost its trading figures.

As Chinese firms did well, so their stock market prices began to rise. Between October last year and June this, the Chinese stock market rocketed from 2,209 to 5,166 at its peak — a rise of 134 per cent.

Novice investors all over China — where gambling is a national pastime — thought they saw a chance of easy profits and opened share trading accounts. Crucially — and potentially disastrously — they frequently funded their investments by borrowing.

Worse, just as millions had decided to pile in with money they couldn’t actually afford, sentiment began to turn, with serious fears that China’s shares were overvalued.

In a bid to restore confidence, the Chinese government lowered interest rates yesterday, for the fifth time since November, but stock market prices kept falling.

Initially, global stock markets were not affected as international traders thought it was just a blip.

Also, it’s very difficult for foreign investors to buy and sell shares on the Chinese stock market, so savers who have money in a China fund were more likely to be invested through the Hong Kong stock exchange, which, until this week had been only marginally affected by the volatility.

But two weeks ago, China’s government devalued its currency, the yuan, three days on the trot.

Global investors took this as a signal that China’s rulers believed growth was in danger of stalling so badly it had to make its goods cheaper to keep the economy motoring.

Taking fright at the possibility of a major China slowdown, investors began to sell up.

And as traders across the world grew more concerned, other markets began to tumble — an effect known as financial contagion.

With the Chinese Composite Index plummeting more than 8 per cent on Monday, the FTSE 100 fell by 288 points, nearly 5 per cent, to close at 5,898.47. In the U.S., the Dow Jones dropped 1,000 points when it opened on Monday.

Why the UK has been so badly hit

China accounts for a staggering 15 per cent of the world economy, so if it stumbles many other countries also trip up.

In the UK, it’s the international make up of the FTSE 100 which exposes investors — especially those with tracker funds.

Many people think of the FTSE 100 as a barometer of Britain’s economic health, reflecting our most successful High Street chains, software makers, engineering industries and service companies.

But in reality, it’s nothing of the sort. Around 16 per cent of the FTSE 100’s value is made up of international oil and gas companies such as Shell, and mining businesses such as Glencore and RioTinto make up 9 per cent.

That makes a quarter of the entire index dependent on commodities.

So when fears rise that China will no longer need as much copper, iron or oil, this hits demand for all these companies’ shares — sending the price even lower.

Another difficulty is that the FTSE also comprises many other international businesses which get a significant proportion of revenues outside the UK. These include drug giant AstraZeneca, fashion chain Burberry and HSBC bank.

It means that even if the UK is fundamentally still doing well, it doesn’t mean its stock market is, too.

Bad month at the office: The FTSE 100 has taken a beating thoughout August but arrested its slide yesterday

Are my retirement plans in peril?

Unless you have a final-salary scheme, your pension fund is almost certainly worth less today than it was a fortnight ago.

Most stockmarket-linked pensions are heavily invested in the FTSE 100 and so will have taken a battering.

However, whether this is a cause for concern will depend on your age and goals. If you’re not retiring for ten or 20 years, then the turmoil shouldn’t have any impact on you.

Nick Dixon, investment director at Aegon UK, says: ‘If pension savers don’t need to access their fund for many years, they should not be alarmed by short-term volatility. Stock markets are in for a bumpy ride over the coming weeks, but if savers can stomach the ups and downs, they will do well over the long term.’

For those much closer to retirement and in a workplace pension, their savings should be safe.

This is down to a process called ‘lifestyling’. It moves your money away from company shares to less risky assets such as bonds and cash the closer you get to retirement.

However, those who save into a personal pension could be nursing a hefty loss. These types of fund require a lot of active management if you want to avoid the wildest stock market swings. But again, unless you’re weeks away from retiring, there’s plenty of time for markets to rebound.

There is also a warning for those who use a so-called drawdown pension. These allow savers to withdraw an income from a fund that remains invested in the stock markets. But taking cash out during periods of turmoil such as this can cause hefty damage to your savings pot.

Danny Cox, head of financial planning at Hargreaves Lansdown, warns: ‘If you draw capital when markets fall, you run an increased risk of rapidly eroding your pension and running out of money.

To stop the rot, pensioners with such drawdown funds need to put a temporary hold on taking income.

What goes up: Between October last year and June this, the Chinese stock market rocketed from 2,209 to 5,166 at its peak — a rise of 134 per cent

Anyone with cash in an equity investment fund for long-term savings or to boost to their retirement should grit their teeth. The near 5 per cent FTSE 100 fall on Monday means you’ll have lost a lot of value.

All types of share funds have taken a hit from plunging indices — from emerging markets to UK equity income and Asia funds.

Hardest hit will be those who went gung-ho into a tracker fund this year. These have proved very popular over the past 12 months, making up 12 per cent of all investors’ fund holdings.

But if you put £10,000 into a FTSE 100 tracker fund when it stood at 7,100 in April, then you have about £8,680 left today. If you invested £10,000 a year ago, you have £9,290.

But if you sell today you are locking in that loss. While many experts predict the next few months will be rocky, the likelihood is that in the long term the market will rise again. If you are patient, then you could at least come back out even.

If, though, the thought of a sustained period of uncertainty makes you feel queasy, then you might prefer to sell out now. Even if you have lost cash, at least you are certain about the amount that you have lost — and won’t risk losing even more.

Laith Khalaf, senior analyst at wealth managers Hargreaves Lansdown, says: ‘It was just five months ago that investors cheered as the FTSE broke through the 7,000 mark for the first time. Now it looks like a long climb back to that level.’

investors should hold tight if they can. While experts agree there will be more ups and downs over the coming months, it’s widely thought that the FTSE 100 will bounce back towards its pre-plunge levels.

Yesterday, the Chinese government further reduced interest rates in a bold bid to calm nervous investors.

Still, the China Composite Index closed down 7.6 per cent at 2,965 — over the year, it’s 8 per cent lower.

Simon Marsh, partner at Killik & Co, says: ‘Huge market falls are not unusual. In July 2011, there was a similar correction [when markets fell because of the eurozone crisis] which proved to be nothing more than a short-term setback and a good buying opportunity.

‘This current bout of nervousness feels very similar. Importantly, it doesn’t yet feel like the bursting of the tech bubble in 2000 or the sub-prime mortgage crisis of 2007.’

Experts add that anyone considering investing right now would do best to avoid a tracker fund. Instead, choosing a fund manager who makes strong decisions with a good track record over different economic environments is important.

Jason Hollands, of Bestinvest wealth managers, says savers should avoid making any knee-jerk reactions and not be tempted into buying things just because they are cheap.

And for savers who want a UK fund, he says it’s important to choose one which invests in companies which aren’t exposed to emerging markets.

He likes Standard Life UK Equity Income Unconstrained, which invests in a range of UK firms including house builders Crest Nicholson and insurer Legal & General. It has turned £1,000 into £1,956 over the past three years.

...or is now the time to buy and be brave?

Golden opportunity? Some experts believe now is not the time to sell but the time to buy

Braver investors with cash to spare might think that now is a golden buying opportunity.

Darius McDermott, director at Chelsea Financial Services, says: ‘Rather than panicking and selling now and crystallising these losses, I’d sit tight or even buy.

‘Sometimes the stock market takes time to recover, but even after the 2008 crash the FTSE was back to its original levels within 18 months.’

But others are less optimistic.

Brian Dennehy, founder of Fund Expert, says: ‘Savers shouldn’t be worried about the Chinese stock market. There is a far worse, yet more subtle problem building closer to home.

‘Here in the UK, rising debt and an ageing population is the real concern. The former sucks the oxygen out of the economy and the latter aren’t spending as much as they once did to help prop it back up.’

‘We wouldn’t be surprised to see the FTSE 100 fall by around 25 per cent — to 5,000 — before it bottoms out.’

He says nervous investors should buy cheap shares in regions that are benefiting from positive long-term trends — and points to India.

He adds: ‘India is barely being affected in all of this turmoil and fits the category of an emerging country which is set to benefit from long-term positive trends.’

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Should investors sell up, sit tight or buy 'cheap' shares after the Great Fall of China?